New York Bidders Describe Ledger Dripping In Red

On Dec. 11, final bids in the sale of New York magazine are due, according to sources familiar with the bidding process. The magazine’s corporate parent, Primedia, is so hopeful that a new owner will be found in time for Christmasthat they’ve already excised New York from their own balance sheets as a “discontinued business.” Of course, things might not go according to Primedia’s plan. Bidders have complained that they haven’t been given enough information to place their bids. And, suddenly, as the bidding process pounds to its conclusion, the foundling glossy weekly magazine is looking more and more like a problem child. According to sources who’ve seen the “black book”-the financial documents sent out to potential bidders earlier this fall-the magazine is a victim of starvation by its parent company. Circulation numbers are artificially high: Primedia hasn’t produced an audit for two years, and 42 percent of the magazine’s circulation yields little or no profit.

The new buyer will also have to provide all the services Primedia has been providing for the magazine without counting them against New York ‘s profits. A new owner would likely see losses of somewhere between $1 and $2 million a year after counting those in, several bidders said.

“You’re really buying a distressed situation,” said one source familiar with the situation.

Reached for comment, a Primedia spokesman did not respond before deadline.

Whoever buys New York won’t be buying Clay Felker’s New York from 1969. They’re not even buying New York circa 1999. Eight staffers, including columnist Michael Tomasky, have left the magazine in as many months. For some time now, New York has not set the agenda.

“It doesn’t have the hipness of Time Out or the sophistication of Vanity Fair ,” Eric Blankfein, a vice president of Horizon Media, an ad-buying firm, said. “The only thing it has is its name and history. But that’s also a negative because it hasn’t really evolved over time.”

The name and the history have been enough for some. For nearly three months, half the lunch crowd at Michael’s has jostled and tussled to be known as contenders for ownership of New York . If the magazine has been the subject of much know-it-all eye-rolling in media circles in recent years, it is also fondly remembered from the days of Clay Felker. In the beginning, there were supposed sightings of secret alliances between media impresario Steve Brill and Miramax co-chairman Harvey Weinstein. There was Michael Wolff and his very public disclosure of his would-be partnership with Donny Deutsch. Mort Zuckerman made it clear, before a sale was even announced, his intentions to bid, while the Malibu-based Curtco Robb Media remained stealth in its interest. Then there’s former Hachette Filipacchi C.E.O. turned tabloid king David Pecker who all along, in the vein of Glenn Close in Fatal Attraction has been steaming “I will not be ignored.”

Who among these bidders can save New York? These kinds of races notoriously admit of dark horses. But whoever emerges as the buyer will have an enduring challenge: taking New York magazine and making it work again.

And that is, first of all, a matter of money. Reading the fine print, the magazine’s circulation is not what it might have seemed to the outside observer. Since 1998, the magazine has held its “rate base”-the circulation number publishers use to set ad rates-at 425,000. However, according to sources, the book provided to would-be bidders shows that number is grossly exaggerated. According to sources, 22 percent of that circulation comes from subscription agents-independent operators hired by a magazine to maintain subscription numbers. New York also counts, according to sources, another 20 percent of its rate base from free placement copies in venues like hotels. In total, New York sees no revenue from 42 percent of its stated rate base.

Making matters worse, bidders have not been given audited circulation numbers; sources said that’s because the magazine hasn’t produced an audit for two years.

Of course, every magazine uses agents and placements to maintain its numbers. But for New York’s new owner it could mean having to invest significant sums of money just to get the magazine living up to its publicity. Because, while the use of agents not only generates little revenue, it also serves as a kind of temporary Band-Aid, since many subscribers reached through agents don’t renew after the first year. For many years, according to sources, Primedia has avoided a significant direct-mail campaign, which, while expensive initially, is a better way to ensure subscription money that continues to flow from one year to the next.

While the book shows projected earnings for this year of a little more than $1 million, it doesn’t account for overhead costs currently incurred by Primedia. These include, among other things, the cost of the magazine’s circulation and manufacturing departments, attorneys and accountants. Those costs, borne by Primedia’s corporate superstructure, don’t make it on to New York ‘s balance sheets but could be a significant drain on resources to the magazine’s new ownership. One source estimated that, if these services were counted against New York ‘s profits, the magazine’s would actually lose money each year-anywhere from $1 million to $2 million.

“It could be worse than that,” a source said.

And, as with all magazines that change hands, the new owners will be saddled with burdensome contractual obligations, including expensive long-term printing and pre-press contracts. There also remain questions about the magazine’s previous branding arrangements-including its Internet relationship with Cablevision in place since March 2000-and the limitations a would-be buyer would have in using the brand.

Perhaps the only good news for New York in the last year has been the sale itself. News of the sale made the magazine something to talk about again. In the three months following the announcement of the sale, the magazine’s ad pages rose 9 percent. It’s hard to tell how the whole year will look: The magazine’s ad pages are down 6.52 percent-an improvement over 2001, when ad pages fell 9.11 percent, and fairly typical in the current tough market. But if the new owner hopes to make a profit elsewhere on the balance sheet, there’s not a lot of room to cut back expenses.

“I’d be very surprised if Primedia left a lot on the table,” said Scott Peters, managing director of the Jordan, Edmiston Group, the media investment bank. “They’re a fairly shrewd and smart operation in terms of cost control and efficiency. It’s not an obvious cost-saving opportunity. For any buyers to come in, they will come in with the view of it as a growth story on top.”

It would certainly have to be for David Pecker to buy it. One American Media source said Mr. Pecker wants to grow the magazine on the newsstand through his company’s massive distribution network, while putting his newly-crowned editorial director Bonnie Fuller, who has long experience moving magazines on the stands, in charge.

It doesn’t take much imagination to consider running New York a step up for Ms. Fuller, who is rolling in more than money over at the Star . Owning it could also give her boss, Mr. Pecker, a “legitimate” platform in the New York media world to which the supermarket tabloids can’t possibly aspire.

And Mr. Pecker’s strategy has worked for national magazines like Star and Enquirer . But as recently as 1995, Time Out New York found itself reversing its newsstand approach to profit-making, and now gets most of its rate base through subscriptions. Can it work for a local magazine now if it didn’t in 1995?

On the other hand Mr. Pecker has shown his aptitude for fixer-uppers. His company just bought quite a few of those-including Shape and Men’s Fitness last January for $350 million. While the move added legitimate brands to American Media’s franchise, and was a step away from the company’s dying tabloid brands, it also raised the company’s debt to $ 1 billion. This, for an outfit planning to go public next year. (A spokesman said Mr. Pecker was unavailable for comment.)

With sources counting many of the really large media bidders-Tribune, Emmis, Advance-out of the running, Mr. Pecker could well be as good a buyer as any.

But then there’s Mr. Zuckerman. Mr. Zuckerman does not need a partner. He has advertising and circulation people in place who could absorb a lot of New York ‘s operations without tremendous capital expenditure, and another weekly magazine ( U.S. News and World Report ) and a New York newspaper (the Daily News ) already under his control. He has his own media magician, Daily News associate publisher and editorial director Martin Dunn, who sources said would look after New York in addition to the News if Mr. Zuckerman bought the magazine.

Mr. Dunn is also a tabloid man. He led the Daily News in the last tabloid war against the New York Post . The results are already showing in the News -with its front-page editorializing and splashy celebrity coverage serving up a burlesque of the Post each day.

A spokesman for Mr. Zuckerman would only say he was interested in the magazine.

Is this-the editorial direction of a Bonnie Fuller, of a Martin Dunn-the future of New York ?

Magazine consultant Marvin Walker offered a sobering thought.

“The only way things get better is if New York becomes more cutting edge with much tougher reads,” Mr. Walker said. “It’s become very soft and there are better listing publications out there.”

Build a better magazine, a gathering place for the social elite-people who advertisers want to reach-and those dollars will come.

Whether the kind of company that can afford to take on New York is also the kind of company that will give the magazine the kind of parenting it needs remains to be seen.

“The original New York , when Clay Felker did it, did a lot of investigative reporting and gained attention because of the articles,” Mr. Walker said. “It’s lost that edge. It needs to get it back.”